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Sunny Flat

Perhaps you’ve been tempted by an announcement for a “Sunny Flat in Paris” (airbnb). Or perhaps you’ve clicked on item #57214 (sabbaticalhomes.com). I would recommend looking further, for example on a site directed to French consumers like seloger.com; or even biting the bullet of a finder’s fee and dealing with a real estate agency (agence immobilière, they call it in the local parlance). The difference is that with a non-localized site like airbnb, you are outside of any jurisdiction, and recourse will be difficult in case it turns out that the apartment you’ve rented is small, dirty, ill-equipped, and does not have the nice view you were counting on. Say you were attracted by a charming urban vista like this:

and arrived with baggage and children after many hours of flight to look out the window at this:

You would, I think, wish you had taken another apartment. It’s been known to happen.

George Akerlof (co-laureate of the 2000 Nobel Prize) analyzed this situation in his classic paper “The Market for Lemons: Quality Uncertainty and the Market Mechanism” (Quarterly Journal of Economics, 84 [1970]: 488-500).

There may be potential buyers of good quality products and there may be potential sellers of such products in the appropriate price range; however, the presence of people who wish to pawn bad wares as good wares tends to drive out the legitimate business. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost must also include the cost incurred from driving legitimate business out of existence. (495)

Akerlof continues: “Dishonesty in business is a serious problem in underdeveloped countries.” Well, perhaps the judicial void in which many Internet businesses operate is, for all its technological smoothness and the quality of its air-conditioning, in these terms still an “underdeveloped country.” Akerlof sees in traditional “underdeveloped” societies, with their wide disparities in quality among instances of a like commodity (one grain dealer will put pebbles in the rice to add to its weight, another won’t), a function to be filled by the entrepreneur or merchant, the person who makes a living from assessing good quality and bringing it to the end user. But as everyone knows, the great value of Internet commerce has always been to put you in direct contact with the primary seller– who may have as his or her rule of practice “Let the buyer beware.”